Making the Case for More Nonprofit Mergers

New nonprofits spring to life every day. Giving USA 2016 showed a 13% increase in the number of nonprofits from 2005 to 2015. Today, there are 1,184,547 nonprofits all vying for philanthropic dollars. By lowering the exempt status application fee and creating a new EZ form, the IRS will make it even easier for organizations to attain exempt status.

Is this a good thing?

In our opinion, not really. Giving as a percentage of U.S. GDP remains stagnant, even as nonprofits proliferate. Total giving from Americans has hovered around 2% of our GDP for the past four decades.

As fundraisers, this means more competition—with no letup in sight. It also means an increased likelihood for donor confusion and fatigue. Furthermore, duplication of services and a dilution of resources limit the nonprofit sector’s effectiveness.

According to Giving USA, there are fewer volunteers for charitable organizations to depend upon (the total number of volunteers dropped from 64.5 million in 2004 to 63 million in 2014). When nonprofits cannot adequately pursue their missions, those they set out to serve may suffer.

MERGER: A VIABLE OPTION

I am currently serving as counsel on the merger of two large nonprofits. Both are doing well on their own and serving their communities effectively. They are well established, with multi-million dollar budgets, significant histories of impact, and strong donor pools.

But a merger makes sense strategically. The organizations serve different populations, but both missions focus on ending abuse and helping its victims. They have collaborated for years on abuse prevention and awareness efforts and have referred clients to one other.

As one organization, they will have natural synergies. They will be able to tell a larger story about the cycle of abuse in the community and how a community-wide coordinated response will have a greater impact. Combining their professional staff under one umbrella will allow their clients to be served more efficiently and more effectively.

It has taken significant effort to iron out the details of a merger.Integrating two organizations’ cultures and their boards has often been a challenge. We’ve had to consider everything from existing contracts to donor databases and a rebrand. But in the long run, the benefits to the communities and the populations they serve will be substantial.

Mergers as a Strategy for Success, the 2016 report from the Metropolitan Chicago Nonprofit Merger Research Project, examined 25 mergers of nonprofits and foundations in the Chicago area between the years 2004-2014. The report found that in 88% of the mergers, the people involved felt the new organization was stronger and more effective than the originals.

For mergers to work, partners must focus on mission to avoid the pitfalls that can derail the process. Serena Powell, executive director of Community Work Services, shared her experience merging a 136-year-old workforce development nonprofit based in Boston with a much larger workforce development nonprofit. “CWS defined success as growing our impact, not our organization,” she wrote.

There are many reasons to consider a merger. When the merger is mission-based and leads to expanded impact, a strategic alignment of two like-minded organizations can be a win-win for donors, nonprofits, and the communities they serve.

Nonprofit Mergers Workbook by David LaPiana is a thorough resource that guides organizations through the merger process.